New Laws commencing 1 July 2016

A new regime that imposes an obligation on a purchaser to collect and remit 10% (non final) withholding tax at or prior to settlement of certain Australian assets, will be introduced from 1 July 2016.

The purpose of the new regime is to ensure that the interests of foreign residents remain subject to Australian CGT laws. Since 2006 foreign residents have been subject to Capital Gains Tax (CGT) on disposals of Australian assets . However, compliance with the voluntary regime of compliance has been low.

What real property is liable for GST?

Taxable Australian real property (TARP) requires a direct interest in real property situated in Australia and includes options, leases , commercial and residential property with a value of more than $2 million dollars. Property of less than $2million in value will be exempt.

What impact will this have on property transactions?

The new regime creates impositions for vendors and purchasers and their lawyers.

Special conditions in a vendor's contract will be required giving warranties relating to a vendor's residency status. False declarations are liable to penalties of up to $21,600.

A purchaser must treat a vendor as a foreign resident (even if the vendor is an Australian resident) until a clearance certificate is obtained from the ATO. While a certificate will remain valid for 12 months, in some circumstances the application for a certificate could take up to 28 days. When there is more than one vendor each vendor will need to give a warranty or provide a certificate.

A further concern for vendors will be how to manage the withholding payment to the ATO by the purchaser. If the payment is not made then there is no credit to the foreign resident vendor. A receipt or some other evidence will be required at settlement. The penalty for a non complying purchaser is equal to the amount that should have been withheld and remitted to the ATO.

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